The lowdown on virtual assets as investments.
By Jenny Hoff, Photo by Andrey Metelev
Just as you’re starting to get comfortable (or not) with cryptocurrencies, new “virtual assets” are entering the marketplace, giving you more opportunities to invest your cold hard cash into something less tangible. Whether you want to invest will depend on your own risk tolerance.
NFTs, or non-fungible tokens, are different from bitcoin and other cryptocurrencies in that each one is unique. Think of cryptocurrencies as dollar bills. They are all basically the same; one dollar bill can be swapped for another, just as one bitcoin could be swapped for another. NFTs are more like certificates of authenticity. They are unique, like the title on your house or car, or a certificate for a painting you might have acquired. Except in this case, you don’t usually physically acquire anything; it’s a virtual possession.
“It cuts out the middleman,” says NFT enthusiast and founder of OpenArt Studios, Apollo. “With NFTs, artists can sell their own artwork and immediately get their crypto sent to their online wallet.”
Apollo, who works in tech but uses a pseudonym for his NFT work, is trying to bridge the physical and virtual world to make NFTs more accessible and understandable to a wider audience. “If you come to a gallery showing, for instance, and you decide to purchase an NFT for a piece of artwork, I would send you a unique code that allows you to look at the art using different filters and interactive tools,” he explains. “You would then also receive the physical piece of art or a print. But your interactive tools would be only accessible to you. Other people looking at the art wouldn’t have your unique interactive experience with it.”
What’s in an NFT?
However, most NFTs never result in a physical possession. Like most of the photos on your phone, they stay in the virtual space. People spend millions of dollars to “own” these virtual collector’s items. (Google “bored ape yacht club” if you want to see which NFTs are currently selling for hundreds of thousands of dollars.)
Whether these seem like good investments is usually based on a person’s knowledge in the space. “You probably shouldn’t do it if you don’t want to take the time to educate yourself on it and authenticate that the provider you’re using is actually selling a unique NFT and not something else,” says Apollo.
That’s good advice for any investment. You wouldn’t buy a piece of land in another country or city without making sure you did your due diligence. So, you shouldn’t buy a piece of virtual land (yes, that exists) in the form of an NFT on a forum that you don’t do research on first.
As far as the risk? Think of it as buying property in a banana republic. It might work out. But it might also become worthless if there is no enforceable law backing up the rights of ownership. Most importantly, if you do decide to join the Wild West of NFT investing, make sure you only use money you can stand to lose.